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With the bull market alive and well for the seventh-consecutive year, short interest in some stocks has recently fallen sharply due to heavy covering.

In this article, we’ll take a closer look at five stocks, American Equity Investment Life Holding (NYSE:AEL), FleetMatics Group PLC (NYSE:FLTX), AEGON N.V. (ADR) (NYSE:AEG), Bellatrix Exploration Ltd (NYSE:BXE), and KeyCorp (NYSE:KEY), that have seen the percentage of their float that is short fall substantially from July 29 to August 15. We’ll also use the latest 13F data to see what the smart money that we track thinks of each stock.

Through extensive research, we determined that imitating some of the picks of hedge funds and other institutional investors can help generate market-beating returns over the long run. The key is to focus on the small-cap picks of these investors, since they are usually less followed by the broader market and are less price-efficient. Our backtests that covered the period between 1999 and 2012, showed that following the 15 most popular small-caps among hedge funds can help a retail investor beat the market by an average of 95 basis points per month (see the details here).

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#5 KeyCorp (NYSE:KEY)

– Number of Hedge Fund Shareholders (as of June 30): 46
– Total Value of Hedge Funds’ Holdings (as of June 30): $934.46 million
– Hedge Funds’ Holdings as Percent of Float (as of June 30): 10.00%

Short interest in KeyCorp (NYSE:KEY) fell by 55.5% to 23.84 million shares from July 29 to August 15, as many investors steered clear of shorting financial stocks this month. Not only is the U.S. economy firing on all cylinders, but many investors also expect the Federal Reserve to begin hiking interest rates soon. If interest rates rise, KeyCorp’s interest income will rise too. Given a price-to-book ratio of just 0.93, an annual dividend yield of 2.76%, and the impending interest rate hikes, the short case for KeyCorp is not nearly as strong. Jim Simons‘ Renaissance Technologies raised its stake in KeyCorp by 65% during the second quarter, to more than 4.5 million shares at the end of June.

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#4 Bellatrix Exploration Ltd (NYSE:BXE)

– Number of Hedge Fund Shareholders (as of June 30): 7
– Total Value of Hedge Funds’ Holdings (as of June 30): $13.22 million
– Hedge Funds’ Holdings as Percent of Float (as of June 30): 6.30%

The bear case for Bellatrix Exploration Ltd (NYSE:BXE) is pretty self explanatory. Oil and gas prices are low and the stock currently trades for under $1 per share. If oil and gas prices stay low, Bellatrix shareholders will suffer substantial dilution to keep the company alive until prices recover. If the stock is delisted by the NYSE and the company doesn’t do a reverse split, the stock could fall substantially in the pink sheet market due to the lack of liquidity. Throwing a wrench in the bear case has been rising WTI prices, which have rallied by almost 20% since the end of July. Due to the rising value of WTI, Bellatrix’s short interest fell by 61.5% during the 17-day period ended August 15, to 976,154 shares short.

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